What Is a Fund of Funds (FoF)?
A fund of funds invests in other funds rather than directly in stocks or bonds. Here’s how it works and its trade-offs.
On this page
A fund of funds (FoF) is a mutual fund that invests in other mutual funds or ETFs, rather than directly in stocks and bonds. It’s a single wrapper holding a basket of underlying funds.
Common types
- Asset-allocation FoFs — hold a mix of equity, debt and gold funds to give ready-made diversification.
- Overseas FoFs — a popular way for Indians to access global markets, by investing in international funds or ETFs (see global FoFs and international funds).
- Gold/ETF FoFs — invest in an underlying ETF so you can SIP without a demat account.
The advantages
- One-click diversification — exposure to many funds/assets through a single scheme.
- Convenience — no demat needed; easy SIPs even into ETF-based or overseas strategies.
- Automatic rebalancing in asset-allocation FoFs.
The trade-offs
- Double layer of costs — you pay the FoF’s expense ratio plus the underlying funds’ costs (though SEBI caps the total).
- Less control — you don’t choose the underlying funds.
- Taxation — an FoF’s tax treatment depends on its structure and holdings, which can differ from holding the underlying directly; check current rules.
Who it suits
Investors who value simplicity and ready diversification — especially for global or multi-asset exposure that’s otherwise fiddly. Weigh the extra cost against the convenience. Education only, not a recommendation.
